Serco lose Docklands rail franchise after 17 years

The Docklands light railway in east London. Picture: PA

GARETH MACKIE

RUPERT SOAMES, who took the helm of Serco two months ago, has been dealt a fresh blow after the outsourcing group failed in its bid to keep running London’s Docklands Light Railway (DLR), which it has operated since 1997.

The former Aggreko boss, who launched a £160 million cash call on the day he became Serco’s chief executive, said on Thursday the firm expects to continue racking up losses on a contract to provide accommodation services for asylum seekers.

He has now seen the outsourcer lose its DLR franchise to French company Keolis, which Transport for London (TfL) has chosen to run the driverless route until 2021, with an option for an extension until 2023.

Perth-based transport giant Stagecoach had also been in the running for the route and a spokesman for the “disappointed” group said yesterday that its bid would have delivered “good value to the taxpayer”.

Robin Speakman, an analyst at Shore Capital, said: “This is one contract that, given past success, we expected Serco to renew successfully. However, in terms of the financial impact upon the group, the loss has a relatively small impact.”

He added that the outsourcing specialist, which was rocked last year when it was found to have overcharged the UK government on a contract to tag criminals, is expected to look at its overall rail operations as part of an ongoing review “and we remain uncertain as to its re-bid position for the more significant Northern Rail franchise”. Serco, which recently won the franchise to run Caledonian Sleeper overnight train services between Scotland and London, said the DLR deal generated revenues of about £90m last year, or 2 per cent of its total sales, at a margin “significantly below the average level the group achieves on its contracts”.

David Stretch, managing director of its transport business, said: “We are obviously disappointed that we have not been selected to continue to manage and operate the DLR.

“We remain excited by the opportunities we see to transform services for passengers in the transport market, as illustrated by the recent award of the 15-year contract to run the Caledonian Sleeper service for Transport Scotland.”

The new DLR contract will start on 7 December under a joint venture partnership between Keolis – which already has stakes in a number of mainline franchises – and public services company Amey.

Keolis UK chief executive Alistair Gordon said the franchise victory was “a major achievement”, while Amey boss Mel Ewell promised that the two companies would “deliver a specialist service that provides value and ensures London’s travelling public experiences a reliable and high-quality service”.

The DLR began operating in 1987, with 11 trains serving 15 stations and in its first year of operation it carried 6.7 million people. The railway now has 45 stations and carried a record-breaking 101 million passengers last year.